Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Tata Motors Limited (NYSE:TTM) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds’ portfolios at the end of December. At the end of this article we will also compare TTM to other stocks including Trimble Inc. (NASDAQ:TRMB), Targa Resources Corp (NYSE:TRGP), and Camden Property Trust (NYSE:CPT) to get a better sense of its popularity.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s go over the key hedge fund action regarding Tata Motors Limited (NYSE:TTM).
How have hedgies been trading Tata Motors Limited (NYSE:TTM)?
At Q4’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2018. By comparison, 15 hedge funds held shares or bullish call options in TTM a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Tata Motors Limited (NYSE:TTM), with a stake worth $49.9 million reported as of the end of September. Trailing Renaissance Technologies was LMR Partners, which amassed a stake valued at $46 million. AQR Capital Management, Citadel Investment Group, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Tata Motors Limited (NYSE:TTM) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers who were dropping their positions entirely heading into Q3. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the biggest position of all the hedgies followed by Insider Monkey, comprising about $11.5 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dumped about $6.4 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Tata Motors Limited (NYSE:TTM) but similarly valued. These stocks are Trimble Inc. (NASDAQ:TRMB), Targa Resources Corp (NYSE:TRGP), Camden Property Trust (NYSE:CPT), and Albemarle Corporation (NYSE:ALB). This group of stocks’ market valuations are similar to TTM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRMB | 17 | 493848 | 0 |
| TRGP | 35 | 485408 | 14 |
| CPT | 19 | 301165 | 5 |
| ALB | 28 | 285484 | 6 |
| Average | 24.75 | 391476 | 6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $391 million. That figure was $108 million in TTM’s case. Targa Resources Corp (NYSE:TRGP) is the most popular stock in this table. On the other hand Trimble Inc. (NASDAQ:TRMB) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Tata Motors Limited (NYSE:TTM) is even less popular than TRMB. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. A handful of hedge funds were also right about betting on TTM, though not to the same extent, as the stock returned 19% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
